Working for yourself can be great, but it can also be quite… taxing.
Being your own boss comes with incredible perks — like working where you want and when you want — but the tax side of things can be a bit more complex than when you had an employer handling everything.
To help avoid any unpleasant tax surprises, here are some key rules to keep you in good standing with the IRS.
You have to report income and expenses on Schedule C of Form 1040. As a self-employed worker, you’ll wind up owing taxes on your net profit.
The upside? Your business expenses get deducted against your gross income and not as itemized deductions. And if you have a bad year and lose money, you can usually deduct those losses against your other income.
You’ll have to pay self-employment taxes. For 2025, you’ll pay 15.3% on your first $176,100 of net earnings, then 2.9% on anything above that.
If you’re a high earner, you’ll pay an extra 0.9% Medicare tax once you hit $200,000 if filing individually or $250,000 if married filing jointly. The silver lining? You can deduct half of what you pay in self-employment tax.
You might qualify for a pass-through deduction. If your business generates qualified business income, you may be able to deduct up to 20% of it.
The pass-through deduction is applied after most of your other deductions, meaning it reduces your final taxable income. The good news is you can claim it whether you itemize your deductions or take the standard deduction.
Your home office expenses may be deductible. Working from your home? Your home office can be a dedicated room, part of a room or even a separate building on your property that’s used to conduct business.
You may quality for the home office deduction on all direct expenses, as well as part of your indirect expenses that are related to working from home.
You’re responsible for quarterly estimated tax payments. Since no employer is withholding taxes from your income, you’re on the hook for paying the IRS four times a year.
You can deduct your health insurance premiums as a business expense. This means you get to deduct 100% of your premiums, compared to the regular medical expense deduction that only kicks in after you’ve spent over 7.5% of your income on medical costs.
You must maintain complete records of your income and expenses. In order to claim the full amount of deductions you’re entitled to receive, be sure to keep careful documentation of your expenses.
Be aware that some expenses — like car costs, travel and meals — come with extra rules and recordkeeping requirements or limitations on deductibility.
You may consider setting up a retirement plan. This can be a great tax savings strategy, allowing you to deduct what you contribute now and only pay taxes when you withdraw the money later.
Look into retirement plan option like a SIMPLE plan or SEP IRA, which require less paperwork but still offer solid tax benefits. In 2025, business owners may contribute up to 25% of their total earnings or a maximum of $70,000 into their SEP IRA.
You’ll need to handle payroll taxes for your employees. Hiring a team to work for you? That means getting a taxpayer ID number and dealing with withholding, adding a whole new layer of administrative responsibility to your business.
Questions? The CPAs at Magone & Company can help support you in achieving the most favorable tax situation as a self-employed worker or small business owner. Give us a call at (973) 301-2300 to learn more.
This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your unique circumstances.
